Technical analysis of XAGUSD

Silver has generally held its strength so far this week around the familiar area of $26.50. Industrial uses of the metal are generating decent demand as economies have reopened in many countries and China’s manufacturing has returned to growth over the past couple of months. The commodity’s value as a haven also remains in view with zero or negative rates in many countries and a relatively weak dollar. This technical analysis of XAGUSD takes a look at some areas of possible importance on the four-hour chart.

The most important resistance here is the latest high in early August only slightly below the crucial psychological zone of $30. Low support appears to be the area around $23.20 which was unsuccessfully tested several times in late July and the first half of this month.

Technical indicators on XAGUSD H4

Moving averages continue to yield a buy signal, with each of the 50, 100 and 200 SMAs successively above the others. However, the first two are now above the consolidating price. The main area of support in view from moving averages is the 200 SMA which is currently around $24.10.

There’s currently no sign of saturation from either Bollinger Bands (50, 0, 2) or the slow stochastic (15, 5, 5). The latter at 36 is slightly closer to neutral than oversold. The fairly rapid ongoing contraction of Bollinger Bands might indicate that a breakout is coming over the next few days. We can also observe that buying volume has spiked several times over the last fortnight.

Price action and Fibonacci

Recent price action has been pretty muted as momentum has slowed and silver has consolidated around recently achieved areas. Yesterday’s upward engulfing candle from 4.00 GMT might indicate gains to come but in the context these don’t seem likely in the immediate future. The round number $26 seems to be a fairly strong support around which long tails can be observed.

The 61.8% area of the daily Fibonacci fan is the main area of focus from Fibo in the immediate future. Movement back above this area might lead to renewed concentration on the higher two areas of the fan. On the other hand, failure to move back above this zone might signal a deeper retracement.

Key news this week

The most important fundamental event for most markets this week is the conference of the leaders of major central banks. Uniquely this year, there will be no physical conference at Jackson Hole, Wyoming, USA, but the speakers will instead teleconference and broadcast comments to each other.

What the central bankers say about ongoing quantitative easing and the likely trajectory of the recovery in their various countries is likely to be key for silver later in the week. Traders can probably expect somewhat higher volatility on Thursday and Friday. Thursday afternoon’s second estimate of the USA’s second quarter growth in GDP is also an important release for silver as well as gold.